TL;DR: EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It is a measure of a company's operating profitability that strips out financing and accounting effects, making it easier to compare the core performance of different businesses.
EBITDA is a profitability measure that starts from net income and adds back interest, taxes, depreciation, and amortization. The aim is to show how much profit the core operations generate before the effects of how the business is financed (interest), where it is taxed (taxes), and non-cash accounting charges (depreciation and amortization).
Because it removes those items, EBITDA is often used to compare companies with different capital structures or tax situations. It is also frequently used as a rough proxy for operating cash flow, though it is not the same thing.
Many high-growth software companies are not yet EBITDA-positive, by choice, because they are investing aggressively in growth ahead of profit. This is one reason traditional bank lending, which leans on historical profitability, often does not fit them. Venture debt underwrites the growth trajectory and revenue quality rather than requiring established EBITDA, which is part of what makes it available to companies still prioritizing growth over near-term profit.
EBITDA can flatter a business by ignoring real costs. It excludes the cost of servicing debt and the capital needed to sustain the business, so it is best read alongside cash flow and margin measures rather than on its own.
Why add back depreciation and amortization? Because they are non-cash accounting charges. Removing them gives a view of operating performance closer to cash generation, though not identical to it.
Do I need positive EBITDA to raise venture debt? Not necessarily. Growth lenders underwrite revenue quality and trajectory, so a company investing in growth ahead of profitability can still qualify.
Related terms: Gross Margin · Unit Economics · Rule of 40 · Venture Debt
